Wess Company has limited capacity and can produce either its standard product or its deluxe product. Additional information follows.
Per Unit Standard Deluxe
Selling price $ 92 $ 125
Direct materials 46 51
Direct labor 36 41
Problem 1. Using a single plantwide rate, the company computes overhead cost per unit of $17 for the standard model and $22 for the deluxe model. Which model should the company produce? Hint: Compute product cost per unit and compare that with selling price to get gross profit per unit.
Problem 2. Using activity-based costing, the company computes overhead cost per unit of $3 for the standard model and $44 for the deluxe model. Which model should the company produce? Hint: Compute product cost per unit and compare that with selling price per unit to get gross profit per unit.